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Oklahoma Firm Eyes Dry Shale Gas-to-Diesel Plants

A Tulsa, OK-based synfuel technology company has entered a memorandum of understanding (MOU) with an unnamed shale gas exploration and production (E&P) company to study the feasibility of a plant for turning natural gas into diesel.

Earlier this month, Syntroleum Corp. entered into an MOU with what it described as a U.S.-based oil/gas E&P company "to investigate the joint development of one or more 4,000-5,000 b/d natural gas-to-liquids (GTL) plants" integrated into the burgeoning dry shale gas fields in the United States.

Syntroleum outlined the plans without naming the prospective gas producer in a July 9 8K filing to the federal Securities and Exchange Commission (SEC).

A Tulsa-based company senior executive, Ron Stinebaugh, told NGI's Shale Daily that Syntroleum for some time has been telling analysts on quarterly conference calls that it is targeting dry shale gas plays for its patented "synfining" technology. While in the past, natural gas prices were often too high for GTL projects, the "shale gas revolution" has changed all that, Stinebaugh said.

In the late 1990s and through 2003, Syntroleum had several GTL plant proposals, one that involved a unit of Enron Corp. that was slated for Sweetwater, WY (see Daily GPI, Feb. 25, 1998). It also had a proposal for an offshore GTL facility to use stranded natural gas supplies (see Daily GPI, Aug. 22, 2003).

Under the MOU,. Syntroleum and its anonymous partner will fund "a detailed feasibility study and business plan regarding the building of a GTL plant at a site to be finalized as part of the feasibility analysis, which along with the business plan is expected to take up to 12 months, the SEC filing said.

"Thereafter, it is envisioned that the companies will negotiate definitive agreements for construction of the GTL facility through a joint venture entity," the 8K filing said. Under the joint venture, the unnamed counterparty would contribute gas acreage and reserves, and Syntroleum would provide its GTL technology, Stinebaugh said.

Syntroleum said in the SEC filing that it sees a number of advantages to an integrated project approach, including "reserve and pricing security," reduced operating expenses and working capital requirements, along with field plant optimization. The company also thinks that integrated projects will have added flexibility in product sales because a regional facility could offer "higher netback prices in local fuels markets."

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